Which of the following represents the risk that a bond issuer will not be able to make principal payments?

The concept of credit risk directly relates to the possibility that a bond issuer may default on their obligations, including the inability to make principal payments. Credit risk reflects the issuer's likelihood of facing financial difficulties that prevent them from repaying the debt. Investors assess this risk by examining the issuer's creditworthiness, which is often indicated by credit ratings. A lower credit rating suggests a higher likelihood of default, increasing the investor's exposure to credit risk.

In contrast, interest rate risk pertains to the effect of changes in interest rates on the value of existing bonds; market risk involves the overall risk of investments losing value due to market fluctuations; and liquidity risk relates to the difficulty of selling an asset without significant price concessions. Each of these risks impacts an investor's decision in different ways, but credit risk specifically focuses on the issuer's financial stability and ability to meet principal and interest payments.